The Determinants of Ethiopian Commercial Banks Performance

Abstract

This paper investigates the determinants of Ethiopian banks performance considering bank specific and external variables on selected banks’ profitability for the 1990-2012 periods. The empirical investigation uses the accounting measure Return on Assets (ROA) to represent Banks’ performance. The study finds that bank specific variables by large explain the variation in profitability. High performance is related to the ability of banks to control their credit risk, diversify their income sources by incorporating non-traditional banking services and control their overhead expenses. In addition, the paper finds that bank’s capital and liquidity status are not significant to affect the performance of banks. On the other hand, the paper finds that bank size and macro-economic variables such real GDP growth rates have no significant impact on banks’ profitability. However, the inflation rate is determined to be significant driver to the performance of the Ethiopian commercial banks

Keywords: Determinant, Bank, Performance, Ethiopia